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Can a person who has an interest in the outcome or decision of the dispute have the power to appoint

The Supreme Court of India early this week reiterated that a party that has an interest in the outcome of a dispute cannot appoint a sole arbitrator for adjudication of disputes.This decision was rendered in the case of Perkins Eastman Architects DCP v/s HSCC (India) Ltd.[1]

Facts:

A consortium of Perkins Eastman Architects DCP and Edifice Consultants Pvt. Ltd. (collectively, P&E) and HSCC (India) Ltd. (HSCC) entered into a contract for architectural planning and designing related work. When disputes arose between the parties, HSCC appointed a sole arbitrator to adjudicate the disputes in terms of Clause 24.1 (ii) of the contract. The dispute resolution clause provided the following:

24.0 DISPUTE RESOLUTION

24.1….

(ii) Except where the decision has become final, binding and conclusive in terms of sub-Para (i) above disputes or difference shall be referred for adjudication through arbitration by a sole arbitrator appointed by the CMD HSCC within 30 days from the receipt of request from the Designing Consultant……It is also a term of this contract that no other person other than a person appointed by such CMD, HSCC as aforesaid should act as arbitrator……”

P&E challenged this appointment and filed applications before the Supreme Court under section 11(6) read with section 11(12)(a) of the Act seeking appointment of an independent and impartial sole arbitrator.

Judgment:

The Court noted that Clause 24 empowers the CMD of HSCC to appoint a sole arbitrator and also stipulates that no other person may act as the arbitrator. Pertinently, an earlier judgment of the Supreme Court in the case of TRF Limited v/s Energo Engineering Projects Limited [2] (TRF) dealt with a similar issue where the MD himself was named as an arbitrator with additional power to appoint any other person of his choice as an arbitrator. The Court had held in that case that as the MD himself was ineligible/disqualified to act as an arbitrator by operation of law under section 12(5) of the Act (introduced by the 2015 amendment), he could not also nominate another person to act as an arbitrator.

Relying on the TRF judgment, the scheme of appointment of arbitrators summarised in the Law Commission Report No. 246 and various recent judgments[3][4][5], the Court ruled that in a case where only one party has a right to appoint a sole arbitrator, its choice will always have an element of exclusivity in determining or charting the course of arbitration and therefore the person who has an interest in the outcome or decision of the dispute must not have the power to appoint the sole arbitrator. The Court proceeded to appoint Justice A. K. Sikri as the sole arbitrator.

Conclusion:

This judgement reiterates the principle that no one can be a judge in his/her own cause and that independence and impartiality of arbitrators are paramount in the arbitral process.

This judgment renders invalid arbitration clauses in agreements that confer absolute authority on one of the parties to appoint the sole arbitrator.

[2] TRF Limited v. Energo Engineering Projects Limited, (2017) 8 SCC 377

[3] Indian Oil Corpn. Ltd. v. Raja Transport (P) Ltd, (2009) 8 SCC 520

[4] Voestapline Schienen GMBH v. Delhi Metro Rail Corporation, (2017) 4 SCC 665

[5] Bharat Broadband Network Limited v. United Telecoms Limited, (2019) 5 SCC 755

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